The financial services system in Egypt is less developed in comparison to other countries. The local inhabitants are less aware of the financing options available for them. Financial inclusion is not practiced within the country. The state owned banks that have a considerably equal reach in both rural and urban areas dominate the banking system, possessing nearly 70% share in the market as against the private banks. Auto & Car Loans in Egypt, New Car Sales in Egypt, Interest Rate Car Loan in Egypt, Used Car Sales in Egypt, Used Car Sales in the Egypt They lag in efficiency as well as in terms of financial intermediation in comparison with the private banks that concentrates only in urban areas.

Accessibility to finance is a major factor that influences the growth of any financing market of a country. In Egypt financing segment is dominated by the banks.

The car finance market has always been dominated by banks. However, dealership financing also has a significant role in the market. People in the country are largely dependent on dealership financing in the country as the terms and conditions and the procedures of financing through a dealer is less complex.

Egypt car finance market has showcased a consistent growth trend until 2015 during the review period, 2011-2016 at a CAGR of ~%. In 2016, there was a fall in the credit disbursement for passenger and commercial cars as a result of the macro economic challenges faced by the country. The growth exhibited by the market during the initial five years of the review period was supported by factors such as increasing demand for new and used cars, rising car prices, growth in interest rates and other factors.

Which Car Is Financed The Most? New Or Used Car?

Banks and private financing sector in Egypt finances both new and used passenger and commercial cars. The major difference is in the interest rate and the minimum salary requirement based on which the customer avails the car loan. Used car finance bears a higher interest rate compared to the new car finance. The market is dominated by new car finance with a share of ~% as of 2016 on the basis of credit disbursed. The past five years’ trend displays that, though the market is dominated by new car finance, used car finance is also gaining significant rise in the share every year during the review period, 2011-2016. Major factors that influence a person to choose a financing option at the time of a car purchase are their income and the car’s price. Generally, new cars are priced higher than used cars. Average price of a new car in Egypt is EGP ~ and the average price of a used car is EGP ~. The economic and financial condition of the country clearly depicts that the average disposable income of households are considerably moderate. Thus, for buying a new car, people in the country prefer to depend on a financing option available. Moreover, due to the high value of the new car the credit disbursed for new car will also be higher in comparison with a used car. The penetration of new car finance in 2016 was recorded as ~%.

Used cars were priced much lower than a new car during the beginning of the review period due to which paying off its price in lump sum was not a huge burden for a salaried individual or a taxi driver. Furthermore, the amount lent for a used car will be smaller since the car’s value is smaller.

However, it can be observed that the credit disbursed for used cars have also increased over the years. This is due to the increase in the prices and the demand for used cars. During 2016, the credit disbursed for both new and used cars fell by ~% and ~% respectively. This was due to decline in the sales of both new and used cars due to the rise in the car prices amid the foreign reserve crisis, and devaluation of the currency. The used market had showcased a price rise of ~% in 2016 against 2015, due to the rise of new car prices. The price increase in new cars segment has forced the owners of used cars to delay the decision of selling them, expecting a further rise in the price.

Used cars attract a higher rate of interest and generally the minimum salary requirement for used cars is also high. The maximum amount of loan granted in case of used cars also usually lesser than a new car.

The credit disbursed for both new and used cars were impacted by the weakening of Egyptian pound that made the imports of components expensive. The car manufacturing in Egypt is an import driven market and as the imports becomes expensive the cost of production increases that directly raises the product’s selling price.

In Egypt, the maximum repayment period of car finance by the banks is up to seven years and private financing is extended up to five years. This applies for both new and used cars. On the basis of number of new cars financed, the market is dominated by tenure of five years with a share of ~% in 2016. Major factors that influences the choice of tenure by the customers is the ticket size of the car and the repayment capacity of the borrower. The major reason for the preference towards a longer tenure is the higher ticket size of a new car. A new car costs high and the installment amount to be paid by the customer would be higher in case of short tenure. Another major factor that has raised the share of five years tenure is the share of private financing in car loans. ~% of the car loan is processed through private financing and the maximum loan tenure offered by them is five years.

A factor that may also influence the choice of tenure will be the reselling price of the car. A car depreciates every year by ~% and the resale value of the car will drop to a much lower amount than for what it is purchased. Additionally, if the customer has plans to re-sell the car early and upgrade to a better car, a car with lesser or no loan amount is easier to sell. This is due to less paper work involved and easy transfer of ownership of the car.

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